Maybe you thought your Section 1782 line of business sustained a death blow in June at the hands of the US Supreme Court [ZF Automotive US, Inc. v. Luxshare, Ltd., 142 S.Ct. 2078]. But do not despair! I’m here to boost your spirits and maybe your revenue stream. (And to entertain the rest of you, as always).
As most of you know by now, in the ZF case the Court held that neither of two different types of international arbitration tribunals qualifies as “foreign or international tribunal” under Section 1782, and that federal judicial assistance to gather evidence in the USA for use in such tribunals is not available. One was a Tribunal in a private arbitration administered by the DIS in Berlin (for simplicity’s sake, think of DIS as the German equivalent of the ICDR). The other was a investment arbitration tribunal constituted under a bilateral investment treaty that gave investors of a State party to the treaty four dispute resolution options, the one adopted by the Claimant investor having been ad hoc arbitration under UNCITRAL Rules.
Many if not most private commercial and BIT-based investment arbitration tribunals would seem to be covered by the holding and rationale of the ZF case that they do not carry our a foreign or international governmental function. Hence the widespread perception that the 1782 spigot for US-based evidence has been turned off.
But wait. What about all those arbitrations that are accompanied by or preceded by judicial proceedings, pending or contemplated, before domestic courts of the State embracing the arbitral seat that are , without any doubt, “foreign tribunals” within the meaning of Section 1782? The entire dispute, or a branch of it, might be before a court, despite the arbitration clause, with a motion to compel arbitration not yet decided. There might be a lawsuit pending over a genuinely non-arbitrable subject that the arbitration clause carves out. There might be a pending or contemplated application for judicial interim relief. Or a vacatur proceeding on a partial final award. Or a criminal complaint filed by a party to the arbitration against one or more persons who are involved in the arbitration – especially in civil law countries where in the initiation of criminal process by the alleged victim’s filing of a case is a familiar practice.
Will the application of Section 1782 to such parallel proceedings be the new frontier of arbitration-related 1782 litigation in US courts? We do now have at least one case in point, from a federal district court in Northern California – and yes, this case, and not my fertile imagination, planted the seed blossomed here into this Post. So let’s talk about the case. You can also read it. In Re Bureau Veritas, 2022 WL 3563773 (N.D. Cal. Aug. 17, 2022).
From the District Court’s opinion granting in part the Petitioners’ ex parte 1782 application, we learn that (1) Petitioners are Brazilian companies that acquired a competitor in 2015 by acquiring the equity interests of its controlling shareholders, also Brazil citizens, who agreed to stay on as consultants and signed non-solicitation and non-compete covenants; (2) the disputes arise from these consultants having allegedly diverted business away from Petitioners and into the coffers of a competitor in which they also have interests – the competitor being a Brazil operating entity controlled by a Delaware LLC whose founding members reside in Northern California, and (3) there were three pending proceedings for which evidence in the form of deposition testimony from the Northern California-resident individuals was sought, all of them commenced by Petitioners : two actions in courts in Brazil, one civil and one criminal, and an ICC arbitration, all of them naming the consultants as respondents and all arising – at least in substantial part – from the consultants’ alleged breaches of their non-compete and non-solicitation covenants.
But there is also a great deal we do not learn from the District Court’s decision, about the relationships between the ICC arbitration and the civil and criminal actions pending in courts in Brazil. Some of the answers perhaps can be found in the extensive submissions concerning the court cases made by Petitioners in response to the US District Court judge’s request for supplemental briefing that followed shortly after the ZF decision. But I have not read that voluminous material to answer questions that the District Court did not directly address — namely, a series of questions about the relationship of the Brazil court cases to the ICC case and whether granting discovery for use in the court cases was justified despite the obvious collateral consequence of allowing the same discovery to be used on the same issues against the same respondents in an ICC case that, it it stood alone, would presumably not support the 1782 application. And it is curious, to say the least, that the District Court elected not to even touch upon the question of whether the ICC arbitration tribunal is, after the ZF case, a “foreign or international tribunal” under Section 1782. The District Court opted instead to focus only on the Brazil court cases and how the “Intel factors” (discretionary factors, code-naded for the US Supreme Court case in which a non-exclusive list was made) bear on them.
We do not gain from the District Court’s opinion a full explanation of who are the Parties to the ICC case and to the court cases, or a sense of the timing of commencement of the latter in relation to the former. We do not learn who are all the Parties to the civil case in Brazil, or whether the claims asserted against the respondents who are also ICC case respondents are non-arbitrable, or whether a motion to compel arbitration has been or may be made. We do not learn anything about the timing or the substance of the criminal case brought by Petitioners – and so it is not possible to know whether it is (as such criminal complaints sometimes may be) mainly a tactical maneuver to publicly portray the accused respondent as disreputable, but may hold little interest for a public prosecutor who is ultimately responsible for whether to investigate in depth and consider pressing criminal charges.
I draw attention to these unanswered questions because the possibility of maneuvering in parallel judicial proceedings , by arbitration parties looking to circumvent the broad exclusion of international arbitrations from 1782 eligibility, seems obvious and acute. One would expect US witnesses, seeking to quash 1782 subpoenas served upon them, to raise such arguments. In a case like Bureau Veritas, which at this point involves a ruling on the basis of an ex parte application, and is so freshly-minted in the wake of the ZF decision, one can perhaps understand why these concerns were not addressed head-on.
But I suggest we may see, and probably should see, a thoughtful evolution of the discretionary considerations – the “Intel factors” – relating to the granting of 1782 discovery for use in foreign judicial proceedings that relate to a pending or anticipated foreign arbitration. In essence the question is whether permitting the discovery for use in the parallel foreign court case(s) unacceptably undermines the Congressional mandate in 1782 (as revealed to us by the Supreme Court) to confine US judicial assistance in gathering evidence to foreign judicial proceedings not foreign arbitrations. Is there a sufficiently important purpose served by making the evidence available for use in the foreign judicial proceeding that, in the interests of comity, the collateral consequence of enabling the same evidence to be used in a foreign arbitration should be accepted?
These are questions that deserve to be seriously addressed and resolved by our courts based on careful analysis of the facts in each case. And so, I suspect, the lucrative business of pursuing and resisting 1782 applications related to foreign arbitrations is destined to regain something akin to its pre-2022 footing!